Republicans offer Obama new debt limit power

Obama spoke about his country's budget crisis and the need for immediate reform [Reuters]

Republicans have unexpectedly proposed a new authority for Barack Obama, the US president, to raise the government's debt ceiling, as a last-choice option to avert the possibility of his country defaulting on its debt.

Mitch McConnell, the Senate minority leader, submitted a proposal on Tuesday which would allow Obama to request an increase in the government's debt ceiling of $2.5 trillion.

The plan stipulates the increased borrowing authority to be divided into three separate installments over the next year, under the condition that Obama simultaneously proposes spending cuts of greater size.

McConnell's plan came as Obama said that a debt default could delay welfare and disability payments next month, possibly making the elderly the first to suffer.

The US president has been in a series of meetings over the past several days with congressional leaders to search for a way to avoid a default and reach a budget agreement by August 2.

"I cannot guarantee that those checks go out on August 3 if we haven't resolved this issue because there may simply not be the money in the coffers to do it," he said in an interview with CBS News taped earlier on Tuesday.

'Largest possible deal'

The US president has said the possibility of his country defaulting on its debt is "not acceptable" and vowed to reach a budget agreement by August 2.

In a speech on Monday about the US fiscal crisis, Obama vowed to meet Republican opponents every day until a deal is finalised.

"I continue to push congressional leaders for the largest possible deal," Obama said, ruling out a short-term fix and proposing daily negotiations to avert a potentially disastrous default.

Obama spoke at length on his goal of reaching an accord with the leaders of the Republican-controlled lower house of congress.

"We are going to get this done by August 2", Obama said. "The reason we've got a problem right now is that people keep on avoiding things."

The president was scheduled to resume talks on Monday afternoon with Republicans, the US opposition party, to try to break a stalemate over reducing the country's $1.4 trillion deficit and facilitate an increase in the $14.29 trillion debt ceiling.

Obama's plan

The deal that Obama wants - a $4 trillion, 10-year deficit-reduction proposal - would eventually increase taxes, reform social entitlement programmes such as Medicare and Medicaid and cut government spending.

Republicans have balked at the idea of raising taxes on the highest earners and wealthy corporations as part of any plan to slice deep into government spending, saying that doing so would smother job growth.

Democrats have vowed to defend social safety net programmes such as Medicare, which provides health insurance for the elderly and disabled, and Social Security, which provides retirement payments.

Defending himself from the critiques he has received from opposition politicians about his budget plan, Obama said: "It's not because I want to raise revenues for the sake of raising revenues ... If you don't have revenues it means you are putting more of a burden on people who can't afford it, and that's not fair."

But the president also reaffirmed his commitment to crossing party lines for the sake of moving forward.

"I am prepared to take on significant heat from my party to get something done," Obama said. "I expect the other side should be willing to do the same thing if they mean what they say, that this is important.

"I have bent over backwards to work with the Republicans to try to come up with a formulation that doesn't require them to vote sometime in the next month to increase taxes."

The US hit its debt ceiling on May 16, but has since used spending and accounting adjustments, as well as higher-than-expected tax receipts, to continue operating without impacting government obligations.

The US treasury department says that, barring a new agreement, the government will not be able to afford to maintain payments beyond August 2, and will have to begin withholding payments to bond holders, civil servants, retirees and contractors.

Economists say that if the US defaults on its debt, it could lose its ability to borrow, worsening fraught financial relations with creditors such as China and further damaging an already fragile global economy.